Tuesday, February 9, 2010

Government to increase GST (i.e. VAT)

It is perhaps inevitable that the Government would do this - after all no-one expected that the increase from 10% to 12.5% back in July 1989 would stay at that level - 15% is the obvious "rounding up" stage.

As everyone knows, this type of tax is regressive - in other words it bears heaviest on those who earn the least. For that reason it tends to be most popular with right wing political parties as they know that those who earn the least tend not to vote for them. But as everyone also knows, this type of tax reduces people's inclination to spend - and there are problems with doing that in the middle of a recession. When Margaret Thatcher came to power in Britain in 1979 she bumped up VAT from 8% to 15% and that combined with a soaring value of the £ created a huge increase in unemployment during 1980. In fact the current British government actually reduced VAT last year for this reason (it went back up again at the beginning of this year).

How will this affect NZ retailers? Basically it will be the death knell of CD and DVD retailers - people can order these on-line from overseas websites now and get them delivered GST free (postage on these small lightweight items is not great), retailers find it hard enough to compete now, let alone when their selling prices have to go up again.

For booksellers, the big increases that post offices in various countries have made in the last few years have helped offset the tax-free aspect as far as people importing books from offshore websites is concerned - BUT with locally published books - oh dear, another kick in the guts for publishers it will be.

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